LifePoint Confirms Sale To Apollo's RCCH, But Analysts Aren't Too Enthusiastic

LifePoint Health Inc LPNT announced Monday its $5.6-billion sale to Apollo Global Management LLC APO’s RCCH Healthcare Partners.

The buyout price, $400 million less than what Reuters had reported Friday, represents a 36-percent premium to LifePoint’s Friday closing price.

Shares were up more than 30 percent to $64.12 at time of publication.

What Analysts Think Of The Deal

The combined entity, which boasts consolidated 2017 revenue above $8 billion, will oversee about 7,000 physicians and 12,000 licensed beds. Bank of America Merrill Lynch considers the asset aggregation sensible.

“We believe that LPNT makes some sense as a leveraged buyout (LBO) as it could create some opportunity to sell assets and cut costs,” analysts wrote in a note. “Meanwhile, Apollo could potentially create some synergies that other buyers could not by merging LPNT with its current non-urban hospital operations.”

Cantor Fitzgerald added that the proposal could drive LifePoint’s enterprise value-to-earnings before interest, tax, appreciation and amortization (EV/EBITDA) multiple closer to that of the group-leading HCA Healthcare Inc HCA.

However, BMO Capital emphasized the implied upside signals a multiple 6.3 times the analysts’ 2019 EBITDA forecast — lower than that of other recently acquired hospital companies. Community Health Systems CYH bought Health Management Associates at an 8 times multiple, while Tenet Healthcare Corp THC bought Vanguard Health Systems at a 7.2 times multiple.

BMO attributed LifePoint’s lower ratio to its exposure to the tough rural hospital market, as well as lacking optimism the other deals gleaned from the Affordable Care Act.

Considering the circumstances, BMO maintained a Market Perform rating on the stock with a $51 target; Bank of America maintained an Underperform rating with a $50 target; and Cantor Fitzgerald maintained a Neutral rating and $45 target.

What It Means For The Sector

Bank of America doesn't see read-through for most health care peers, but Cantor Fitzgerald anticipates improved group sentiment driving deeper rotation into hospitals.

“We also believe that more attention to the group will highlight that, as primarily domestic companies, hospitals benefit more than average from tax reform,” the latter wrote. “They are also largely unaffected by tariff and trade uncertainties that are weighing on the market.”

The transaction has been unanimously approved by LifePoint’s board and is expected to close over the next several months, although LifePoint can actively pursue alternative proposals through Aug. 21.

Upon shareholder and regulatory approval, the company will operate under the LifePoint Health name.

LifePoint will report quarterly earnings July 27.

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